Nothing New

Strange but true, the cat calls made by Mrs Arroyo and her allies have goaded the P-Noy administration to return fire.

Over the weekend, as the country suffered from the effects of yet another powerful cyclone, there was a different kind of disturbance inserted into twitterverse with Congresswoman Mitos Magsaysay and Deputy Presidential Spokesperson Abigail Valte quareling over the economic legacy of Mrs Arroyo.

The tempest in a teacup was over whether P-Noy was up to the task of maintaining the momentum. Today, the Cabinet’s chief ideologue, Budget Sec Butch Abad joined the fray. From the government’s official gazette, Abad was quoted as saying

It is amusing at the same time galling for Congresswoman Gloria Macapagal-Arroyo to lecture President Noynoy Aquino about building on the gains of her government. The first question that comes to mind is what gains? The people’s gains, or her gains? …Prudent expenditure took a back seat to political survival and political patronage during the previous administration.

It is worth noting that whenever the opposition bring up Mrs Arroyo’s glowing economic credentials, the administration can only point to the waste and alleged corruption in her government as a counterargument.

The irony is that contrary to their claim that good governance leads to growth, the administration in its first year has proven that actually cleaning up government can have the unintended consequence of lowering growth. The silver lining in all of this is that as Presidential Spokesman Edwin Lacierda claims the administration has completed its housecleaning, spending and growth can resume their normal pace.

Sensitive for a reason

In its second year, having made good on its promise to clean up processes for procurement, the government is now prepared to make good on its promise to bring about better economic outcomes. It is hoping to do this with an 8-12% boost to its budget in 2012 (after a nominal growth of 2% last year) and a re-alignment of physical infrastructure spending to social spending for the remainder of 2011 (having missed the chance to spend on the former during the dry season).

At this point, the administration seems vulnerable on two fronts, the first being that it has not delivered on its clean government completely having fallen victim to potential charges of cronyism, the so called KKK (kaibigan, kaklase, kabarilan). The second one has to do with the less than stellar employment and growth figures in its first year.

The real subtext of the opposition’s attack is that P-Noy’s government has been inept at delivering both good governance AND growth. With stiff economic headwinds from a souring world economy over the next twelve months resulting from austerity measures in Europe and the US, the government’s growth target of 5-6% may be difficult to attain given the weak first half of the year.

Key to the attainment of the government’s growth projections will be its ability to attract foreign direct investments as fund managers look to emerging markets to offset the bleak outlook in the West. The problem is that during the first three quarters of his presidency, investments from abroad have sunk. While the slack may have been made up for by domestic investors, the same cannot be expected to hold true in the future after domestic pent-up demand for new plant and equipment runs out.

Should the public private partnerships fail to gain traction in a timely fashion, it could spell the end for investment prospects in the latter part of the year. Having staked all its eggs in the PPP basket, the big risk is that the absence of an alternative economic strategy or Plan B could lead to a loss of public support for this government. Having refused to look at new taxes, the government’s revenues and spending capacity are totally dependent on the economy growing as expected.

Binary Choices

From psychology we have learnt that the mind can only distinguish things in contrast to others. That is why we can relate to stories that use binary opposites (good versus evil, light versus darkness). Our eyes are not trained to see a black strand when it is set against a black canvass. We need to see things in black and white.

The same goes for the narrative of this government. Its legitimacy came from distinguishing itself from the previous administration in terms of honesty and integrity. Its continuing popularity is based on its ability to make that contrast.

When it was in opposition, it claimed that Arroyo’s economic record was tarnished because it was not able to translate economic growth to the welfare of its citizens. It claimed it alone could do that through a good government agenda. Now that it is in government, it is finding that its own economic management is being called into question.

The nationalist legislator Teddy Casino, an ally of the president has stated that the main reason why the economic performance of the Aquino administration does not differ from the Arroyo regime is not because it has failed to address good governance, but because it has failed to set a different economic agenda. He may not be too far off the mark.

In the end, the tendency of governments to turn to patronage as a form of political survival is not due to their failure to bring about good governance, but because of their failure to make economic growth felt by the broader community. For this reason, the charge that P-Noy is doing nothing new, may be the most damaging of all.

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • J_ag

    Good governance is a generational matter. Having a slogan of fighting corruption as a strategy for economic policy is lunacy…

    It is the systemic and structural imbalances that exist in the economy that are the cause of the similar systemic and structural corruption that exists in both the private and public sector.

    Lacierda, Carandang, Coloma and Quezon III are lunatics if they think this slogan will continue to fly.

    The system itself makes it almost impossible to nail the corrupt.

    There is horrendous corruption in China in spite of the major advances they have made. The same goes in India.

    I agree with Walden Bello that unless this government nails a few big sharks it will be considered a failure. That by itself would be revolutionary…

    If Erap would now be confined in Muntinlupa with a few others, GMA would have been a game changer. The country awaits…

    • Bert

      Wait a little longer and it will be done, you will see.

      And then you’ll eat your words, :).

  • J_ag

    Chinese states ability to build for the long long term future. We on the other hand do not have the means and have very short term aspirations of State.

    http://online.wsj.com/article/SB10001424052702304447804576411673210182348.html?mod=WSJASIA_hpp_MIDDLELSMini

  • J_ag

    Correction and addition to my previous post.

    Important to remember that countries when they run into insolvency problems do not disappear like private corporations. They are absorbed by their stronger neighbors. It is like a process of natural selection in mother nature.

    http://www.ft.com/intl/cms/s/0/28e2d3e2-a1b5-11e0-b9f9-00144feabdc0.html#axzz1QWDThhR8

    http://online.wsj.com/article/SB10001424052702304231204576405861389511594.html?mod=WSJ_hp_us_mostpop_read

    • GabbyD

      what the heck r u talking about?

      • J_ag

        second part of my previous post which is undergoing scrutiny by the spam guards

      • J_ag

        Previous post part 1

        Getting the meaning of words correctly and understanding the consequences….

        Macroeconomic policy is using fiscal and monetary policy to manage economies.

        The Vatican of global macro economic policy is the IMF-WB-BIS. Countries are judged on how independent they are of these post colonial institutions that manage the global macro economy to a great extent.

        The Philippines is already inside the box of this triumvirate. The two most successful emerging economies on this planet, India and China, have a semblance of economic sovereignty apart from these institutions.

        The Philippines is already structurally bound to this Vatican of macro economic policy. The distress migration and the extraordinary skills of the Filipino workers abroad has been the the country’s saving grace. It is not the Ayalas, the Tan, Gokongweis etc who are prospering ins spite of themselves.

        The world is being shaken mainly because of the clash of national self interest when it comes to macro economic policy.

        Greece is now being stripped of its status as nation state as its fiscal policy is now being determined by the Euro community. The major flaw in the Euro zone continues to be political union. You cannot have a currency union without a political union. As long as no conflict breaks out it will happen slowly and painfully.

        As for the Philippines nothing is being done to relieve the structural imbalances within the country.

        The dependence on foreign income and export orientation is creating monstrous domestic problems for the near future.

        Can PNoy have the political will to start the country towards this almost revolutionary path or not?

        • UP nn grad

          Doy had commented that it is same-oh same-oh “trickle down” model that, like GMA, that is what Presi-Noynoy is following.

          Then there is this Presi-Noy plan —- an educated citizenry is a liberated citizen pool. Therefore, he is doing K-12. [ But not yet — he is starting cheap — he is starting with the K’s, who will be a decade away from entering the labor pool.

          There are no improvements being put in place to the way PInoys-in-Pinas entering the labor pool in 2014, 2015, 2016 are being shaped // being trained. Same-oh same-oh.

        • UP nn grad

          Doy had commented that it is same-oh same-oh “trickle down” model that, like GMA, that is what Presi-Noynoy is following.

          Then there is this Presi-Noy plan —- an educated citizenry is a liberated citizen pool. Therefore, he is doing K-12. [ But not yet — he is starting cheap. He has to start cheap because there are no taxes raised to better fund K-12. So the game plan — do the K’s (unfortunately the K’s are a decade away from entering the labor pool.)

          There are no improvements being put in place to the way PInoys-in-Pinas entering the labor pool in 2014, 2015, 2016 are being shaped // being trained. Same-oh same-oh.

      • J_ag
  • J_ag

    Getting the meaning of words correctly and understanding the consequences….

    Macroeconomic policy is using fiscal and monetary policy to manage economies.

    The Vatican of global macro economic policy is the IMF-WB-BIS. Countries are judged on how independent they are of these post colonial institutions that manage the global macro economy to a great extent.

    The Philippines is already inside the box of this triumvirate. The two most successful emerging economies on this planet, India and China, have a semblance of economic sovereignty apart from these institutions.

    The Philippines is already structurally bound to this Vatican of macro economic policy. The distress migration and the extraordinary skills of the Filipino workers abroad has been the the country’s saving grace. It is not the Ayalas, the Tan, Gokongweis etc who are prospering ins spite of themselves.

    The world is being shaken mainly because of the clash of national self interest when it comes to macro economic policy.

    Greece is now being stripped of its status as nation state as its fiscal policy is now being determined by the Euro community. The major flaw in the Euro zone continues to be political union. You cannot have a currency union without a political union. As long as no conflict breaks out it will happen slowly and painfully.

    As for the Philippines nothing is being done to relieve the structural imbalances within the country.

    The dependence on foreign income and export orientation is creating monstrous domestic problems for the near future.

    Can PNoy have the political will to start the country towards this almost revolutionary path or not?

    http://www.ft.co axzz1QWDThhR8m/intl/cms/s/0/28e2d3e2-a1b5-11e0-b9f9-00144feabdc0.html#

    http://www.malaya.com.ph/june29/busi4.html

    http://www.bworldonline.com/content.php?section=Opinion&title=Where-does-the-money-go?&id=33833

    http://www.malaya.com.ph/june29/busi4.html

  • GabbyD

    While the slack may have been made up for by domestic investors, the same cannot be expected to hold true in the future after domestic pent-up demand for new plant and equipment runs out.

    __________

    how do you know that domestic investment is a response solely on domestic demand.

    • GabbyD

      from habito’s column. there is no evidence that this is soley domestic demand driven.

      “What have the private domestic investors been investing in? Indicative data are available on this from the same National Income Accounts that gave the GDP growth figures. The data reveal that the 16.7 percent rise in durable equipment investments went to things like pulp and paper machineries, farm machineries, textile machineries, metal working machineries, air conditioners and refrigeration equipment, mining and construction machineries, pumps and compressors, railway transport equipment, road vehicles, and other industrial equipment—all of which rose by double- up to triple-digit growth rates. In other words, real investments were growing almost all across the board. New factories are being built, or existing factories are being expanded. Even farms are seeing a surge in new investments at a rate not seen for many years. Some may not trust these aggregate data from government statistical bodies, but one doesn’t even need to rely on them entirely. We only need to note how publicly listed companies are announcing, one after another, substantial capital expansion programs within the year and in the years ahead.”

    • I was referring to the demand of business for capital equipment. I didn’t use the word to refer to demand coming from the domestic market for the products of these businesses. Businesses had pent-up demand for capital equipment to either replace/upgrade old machinery or to expand existing production. What in fact might happen is that these businesses become more productive and shed workers as a result of the investment.

      • GabbyD

        two comments. capital demand is a funtion of total demand. second, i was commenting not just on the domestic nature, rather on the “cannot be expected to hold true in the future”. you are implying its a one time thing. there is no reason to believe that… unless you believe total demand (foreign and domestic) isnt really rising.

        • On your first comment, we are in agreement. There was no argument there. On the second one, I said we cannot expect this to hold true because of the strong headwinds facing the global economy where we derive much of our income in the form of remittances and exports.
          Already, we see that remittances have dipped. This will lower domestic consumption. When (not if) foreign demand dips, then it will lower demand for our products and services (even tourism). That’s my contention anyway. The so-called “investor confidence” spoken of by Habito could dissipate soon. The 5-6% growth expected could be jobless growth since a lot of these machinery investments could be labor replacing.

          • GabbyD

            it seems remittances are rising, not falling.

            http://www.bsp.gov.ph/statistics/keystat/ofw.htm

            why so pessimistic about the world economy? no troubles in europe. US is stagnating (at worst! — this is good news). japan is recovering.

            why so pessimistic about domestic economy? the rise in domestic investment ALONE is a good indicator that people believe demand is gonna pickup SOMEWHERE. (since u agree w me about investment is derived expected demand, you MUST also agree with this).

          • Sorry, GabbyD, a common mistake. When I said dipped, I meant that the growth of remittances has slowed down.
            The BSP has cut growth expectations to 7 from 8% and said it will slow further to 5% next year.
            The animal spirits we saw came from the post-election euphoria. This will peter out. Three potential problems: (1) a possible Lehman style crash in Europe with the Greek tragedy, (2) a possible hard landing for China which many have predicted, (3) a US sovereign debt crisis if a bi-partisan deal on the debt ceiling is not reached.

  • Bert

    “…the charge that P-Noy is doing nothing new, may be the most damaging of all.”-Doy

    Hehehe, the charge that President Noynoy is doing NOTHING NEW is the most damaging daw.

    Hay naku, halata talaga. As if the GMA’s administration was the originator of good and clean governance and Noynoy was just copying it from Guuulor-Yaaaa. Haaaay, halata talaga. Hi, UP n, ayan na naman si Doy. Ok ba iyan?

    • UP nn grad

      As long as there are no money-making graft slime that sticks to Presi-Noy to his wife, his sons or daughters or his brothers and sisters, Presi-Noy is still in “honeymoon” with the 54% who voted for him. Yellow Army does not care that Presi-Noy’s economic programs are just GMA’s (Noy contribution, of course, is where he says none of GMA’s BFF’s will make money from those projects).

      • UP nn grad

        but Presi-Noy (and the newly crowned anti-Crime Czar) will deserve applause from GMA-and-her-BFF’s (also from Mindanao and Visayas Pinoys-in-Pinas) if Malacanang can cut by 30% the number of kidnappings in Mindanao. Even better if before Presi’s 2012 SONA, the gobyerno has located and arrested Jurim Hussin *see news clip below). Even better if Malacanang gets to hire 50 additional dogs — drug-dogs for PDEA.

        ————————

        Abu Sayyaf abducts Indian national in Sulu
        06/23/2011 | 07:49 PM

        An Indian national was abducted Wednesday night by the Abu Sayyaf in the southern Philippine province of Sulu, a stronghold of the loosely organized bandit group, a police official said on Thursday. Biju Kolara Veettil was abducted at 9 p.m. at Sitio Kaban-Kaban in Barangay Tempuk in Patikul town, according to Police Director Felicisimo Khu, chief of the Western Mindanao Police.

        He said Khu was kidnapped by an Abu Sayyaf faction led by sub-leader Jurim Hussin. The other members of the faction were identified as Ninok Sappari, Mamih Samlahun, Almudjir Yadah, and Namil Aharadji. “These [Abu Sayyaf] members were also involved in the kidnapping of Nelson Lim last May 7, 2011,” Khu said.

        Lim is a Filipino-Chinese restaurant owner in Jolo. Law enforcers have yet to rescue him.

        ————————–

    • If you look at the context from which your quote was lifted, it was in reference to PNoy’s economic strategy being no different from GMA’s. The charge was being raised by Casino who is an ally of the president, not me. I think you might be barking up the wrong tree, my friend.

      The fact of the matter is that no matter how each party wishes to paint itself as good and the other as evil, both their records are tarnished. And while they squabble over who is more righteous (one says it is a good economic manager, the other claims it is more honest), both of them have yet to prove that they can deliver growth that benefits the least of our brethren.

      So rather than be distracted by cat calls, perhaps this government ought to focus its energies on developing a truly alternative blueprint instead of just attempting the same economic strategy and hoping for a different outcome this time around.

      • Bert

        Doy, you are agreeing with Teddy Casino’s statement that Noynoy’s economic strategy is no different from GMA’s and yet you seems to be in awe with GMA’s strategy, basing from your previous statement that the economy improved under GMA’s Administration, and not with Noynoy’s strategy. Aren’t you contradicting yourself?

        Whether we assume such strategy good or bad, don’t you think good and clean governance matter in either case?

        And what’s wrong with hoping for a different outcome from the same economic strategy, assuming it’s the same, coupled with good and clean governance? Do you think bad governance and good governance synonymous?

        • Bert

          I mean, Doy, will bad governance and good governance yield the same result? What do you think.

          • We need to decouple the governance agenda from the socio-economic agenda, Bert. Improving governance in the long-term will require significant increases in spending.

            Sure in the near term there will be low lying fruit in the form of savings here and there that can be re-channeled back to social spending, but in the long term you need to have better systems and personnel in place. All that requires a better resourced public sector.

            So if we are to irrevocably break the back of corruption, we need to look at raising revenues.

        • Under the economic strategy of open markets plus institutions government can have varying rates of success. We have to acknowledge the fact that under Mrs Arroyo the macroeconomy did grow for the most part. We can disparage her administration on many grounds, but we should not try to revise history or the stats in doing so.

          That is very different from “standing in awe” of her achievements. While the economic strategy adopted since the mid-80s might have led to some modest gains, these are marginal at best. That is why our policy elites need to re-think the strategy. That is my contention.

      • manuelbuencamino

        Doy,

        Casino is with the majority but calling him an ally of the administration is a stretch.

        • In the black and white world, I thought that the enemy of my enemy is my friend is the principle by which people determine their allies. He who is not for me is against me, sort of thing.
          Anyway, it was the news report that I cited which branded him thus, so I was in a way simply using the same terminology. So should it be ally in ” “? Regardless though I think the point is that I didn’t level the charge. I was just commenting on it.

          • manuelbuencamino

            doy, in case you have forgotten how politics is in this country…there is no black and white here. politicians politick in a gray world.

            For example, Is Edcel Lagman an ally of the president? Yes, in so far as the RH Bill is concerned. But is he an ally? No

          • Yes, MB, that’s how it is in the real world, as opposed to the way the movement behind this government profess it is.

      • UP nn grad

        Casino’s complaint is that Noy-economics, like GMA-economics, will barely trickly any benefits to the bottom-20% of Pinoys-in-Pinas. Casino says Noy-economics is “Washington consensus-flavor” like GMA’s — to be more to the point, Noy-economics favors Makati business club.

  • UP nn grad

    House Bill 4774 shows that Congress is amenable to ideas on on how to raise money for education and health projects without the need to raise taxes.

    ———————
    QUEZON City Rep. Winston “Winnie” Castelo has found an innovative way to fund pro-poor government projects without raising new taxes. Castelo recently filed House Bill 4774 seeking to mandate winners of grand mega lotto to contribute 20 percent of the pot to the education and housing programs of the government.

    He said of the 20 percent, 10 goes to housing while the other 10 goes to education projects. The lawmaker said the bill is meant only for the high lotto prize winners.

    “Before one gets confused, I would like to clarify that the bill would affect only winners of the grand mega lotto. It does not cover winners of small lotto prizes,” Castelo said.

    ———————————
    I am making up a rumor that two of Presi-Noynoy’s KKK-allies in Congress are co-authoring a bill that mandates that GuLO and her allies (who have houses and cars worth P50Million or more) will be required each year to donate 1.5% of the property-base. Not a new tax, just an appeal to Gu-LO’s charitable spirit. The amount to be donated is 1.5% of the assessed value of their condos and concrete-and-glass mansions, Expeditions, BMW’s and other cars and assets.

  • J_ag

    http://www.abs-cbnnews.com/business/06/24/11/philippines-needs-new-taxes-wider-tax-base-sp

    MANILA, Philippines – “The Philippines needs to expand its tax base and increase tax rates to significantly boost revenues and cut debt levels if it wants to win an investment-grade sovereign rating, Standard & Poor’s Ratings Services said on Friday.”

    “While the country has shown commitment to achieving fiscal consolidation, S&P credit analyst Agost Benard said more steps were needed to improve its ability to generate and capture revenues and reduce reliance on expensive debt. ”
    “They are on the right track and things are progressing in the right direction, but I think a fundamental and sustained revenue-generation improvement is one of the hallmarks of investment-grade countries,” Benard told Reuters in an interview.
    “Countries in investment grade don’t have revenues at 16% of GDP where they have to scrimp on infrastructure spending,” Benard said.
    “Last November, S&P raised the Philippines’ foreign currency credit rating to BB, two notches below investment grade.”

    With all the bric bats between the two forces the system remains unchanged.